The taxpayers have filed an application for special leave to appeal to the High Court from the Full Federal Court decision in Peter Greensill Family Co Pty Ltd (Trustee) v FCT; N & M Martin Holdings Pty Ltd v FCT, which were heard concurrently [2021] FCAFC 99 (see related TT article).

See below for further details.

[Tax Month – July 2021]



As noted above, the Full Federal Court heard both of the appeals concurrently.

  • The Full Federal Court unanimously dismissed the taxpayers’ appeals, against 2 separate decisions that trustees of resident discretionary trusts were assessable under s98 of the 1936 Tax Act on capital gains made on the sale of shares that were not taxable Australian property (TAP) which were distributed to foreign residents.
  • The factual scenarios giving rise to the issues for determination are common to both appeals and the appeals before the Full Federal Court were heard together –

The issue, in a ‘nutshell’

The taxpayer’s argument was that, under Division 855 of the 1997 Tax Act, a non-resident is not subject to Australian Capital Gains Tax on the shares of companies, even if the company was an Australian resident (unless the shareholding gave the taxpayer a sufficient indirect interest in underlying Australian real property). In this case, an Australian resident trust, held shares in an Australian company, which it sold, distributing the proceeds to a beneficiary, who was a non-resident individual. The taxpayers argued that interposing an Australian resident trust ought not change Div 855 result, but the Courts held otherwise. They looked and the ‘pass-through’ regime for taxing Australian resident trusts, on ‘capital gains’, in Subdiv 115-C of the 1997 Tax Act, which applies where a beneficiary is ‘specifically entitled’ to the capital gain. The effect of the Subdivision is to deem the beneficiary to have a ‘capital gain’ equal to the same amount he/she/it was ‘specifically entitled’ to (or a double or quadruple gross up, in certain circumstances). However the Courts held that this Subdiv 115-C regime, is only gives the beneficiary an arithmetic equivalent of the trust’s capital gain, and doesn’t render the trust completely transparent, for CGT purposes. In short, interposing an Australian resident trust DID change the result.

Catchwords from Full Federal Court appeal decision

TAXATION – interaction between div 855 of the Income Tax Assessment Act 1997 (Cth) (1997 Tax Act), sub-div 115-C of the 1997 Act and div 6 and div 6E of the Income Tax Assessment Act 1936 (Cth) (1936 Tax Act Act) considered – where capital gains made by a resident trust estate from non‑taxable Australian property distributed to non-resident beneficiary – where trustee assessed in respect of those gains pursuant to s 115-220 of the 1997 Tax Act and s 98 of the 1936 Tax Act – where foreign resident beneficiary also assessed in respect of those gains pursuant to s 115-215(3) of the 1997 Tax Act– whether s 855-10 of the 1997 Tax Act applied to the foreign resident beneficiary to disregard the capital gains – whether s 855-10 has any operation in the calculation of the amounts required to be calculated under ss 115-215 and 115‑220 in sub‑div 115-C – construction of s 855-10 and sub-div 115-C – appeal dismissed




About the author